The firm announced on Friday that it faces charges that it broke securities law violations and said it plans to halt investor withdrawals at year end.

Falcone, 49, made a fortune in 2007 after betting that there would be a credit crisis as other financial players continued to pour money into subprime loans and other soon-to-be toxic assets. But his luck appears to have turned. Three years ago Harbinger's assets peaked at $26bn; they have since slumped to $5.7bn.

Falcone and other Harbinger employees have received what are known as Wells notices from top financial watchdog the Securities and Exchange Commission that the company is under investigation, Harbinger said in regulatory filing. "Harbinger and its affiliates are disappointed that the staff issued Wells notices," the firm said. The firm intends "to vigorously defend against it".

Harbinger announced in April that the government was also looking into possible market manipulation in its trading of the debt securities of an undisclosed firm from 2006 and 2008. The company has also lost huge sums on an investment in LightSquared, a telecommunications company that has come under fire from regulators and lawmakers.

LightSquared hopes to build a national wireless network using airwave rights originally set aside for satellite phones. But critics claim that the network interferes with global-positioning devices and the firm has yet to convince the Federal Communications Commission that it won't hobble GPS-enabled devices.

The row has proved an embarrassment to the White House. Falcone has been a generous donor to the Democrats and President Barack Obama was an early investor in LightSquared. Republicans have accused the Obama administration of favoring the company, a charge the White House denies.

Harbinger is also being investigated by the US attorney's office and the SEC over a $113m loan Falcone took from one of his funds to pay personal taxes.

A self-made billionaire, Falcone is the youngest of the nine children. His father was a utility superintendent and his mother worked at the local shirt factory. Harbinger Capital made billions of dollars in profits thanks to bets on the decline of the housing market. Falcone's well-timed bet earned him a $1.7bn paycheck in 2007, according to Absolute Return magazine.

But the company's recent woes have spooked investors. In the summer, Bloomberg reported that clients were attempting to withdraw at least $1bn from Harbinger's main hedge fund.